No Judicial Review of Section 24 Rules for Landlords

Em Morley - October 7, 2016

Yesterday, a judge ruled against a judicial review of forthcoming section 24 rules for landlords.

Landlords Steve Bolton and Chris Cooper had joined forces to challenge the measure, which was announced in last year’s summer Budget. Chancellor George Osborne introduced the plan to restrict the amount of mortgage interest that buy-to-let landlords can offset against tax.

Bolton and Cooper, who are thought to be unlikely to appeal the ruling, said they were “outraged” by the judge’s decision.

However, they added that although their legal challenge, which was crowdfunded by around £180,000, has come to an end, they will not give up their fight.

Without a judicial review or Government U-turn, the restriction on mortgage interest tax relief to the basic rate (20%) will be phased in from April next year.

Bolton and Cooper argue that the measure means that most landlords will pay extra tax, of 20% or more, on their mortgage interest. They warn that the tax landlords will have to pay could be bigger than their profit, leaving them with losses.

They insist that the real losers of the tax change will be tenants, as many landlords will be forced to put rents up or leave the market.

At yesterday’s hearing at the Royal Courts of Justice in London, Bolton and Cooper were represented by Omnia Strategy, led by Cherie Blair, whose own family is thought to own at least ten houses and 27 flats.

Blair’s legal team argued that section 24 is unlawful on the grounds that the restriction on landlords’ ability to deduct finance costs as a business expense may constitute an illegal grant of state aid to corporate landlords and owners of commercially let holiday homes, and may breach the European Convention on Human Rights.

No Judicial Review of Section 24 Rules for Landlords

In court, Blair was initially applauded from the public gallery, when she said that the Government was unfairly penalising individual buy-to-let landlords by “singling them out”, while allowing others, such as limited company landlords, to keep their tax perks.

However, Timothy Brennan QC, representing HM Revenue & Customs and the Treasury, said the claim was arguable: “There are cases which justify the courts looking at them in the public interest. This is not one of them.”

After the hearing, Blair said: “The court’s decision that our clients’ legal challenge should not proceed is very disappointing. Steve and Chris, and many others, have dedicated a lot of time and energy into putting forward the best case possible.

“We know the case has been supported and followed with interest by a large number of individual landlords. Many of these landlords now face challenging times ahead.”

She added: “From the outset, the legal process was just one aspect of our clients’ fight against this unfair measure. Together with their impressive and growing coalition, they will continue to engage with the Government, and the legal team wishes them every success.”

In a joint statement, Bolton and Cooper said: “We are outraged by the court’s decision. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of section 24.

“From April 2017, the negative impact of this previously failed tax experiment from Ireland, where rents increased by 50% over a three-year period, will be felt far and wide. Sadly, it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.

“For many, it will also mean the loss of their homes, because vast numbers of landlords will be forced to exit the market. Hard-working, responsible landlords will have their pension plans in ruins, but the large corporations and the wealthiest in society, who can buy property without the need for mortgage finance, are systematically excluded from this unfair tax policy.”

They look ahead: “Now that the legal route has run its course, we will be focusing 100% of our attention and resources on taking our case more forcefully, more powerfully and more directly right to the heart of the Government.

“Our goal is simple: to abolish this tax or to remove the retrospective nature of it. We will be launching a range of lobbying, media and grassroots activism measures over the coming days and weeks. We will also be encouraging all of our landlords to write to their tenants if they have to increase their rents or sell up, clearly explaining that it is this Conservative tax policy that has forced them into this situation.”

Landlord groups have also spoken out in support of the cause.

The Chief Executive of the National Landlords Association, Richard Lambert, responds to the court ruling: “This decision is ultimately disappointing, not just for landlords, but for the tenants who will see their rents rise as a consequence of the changes to landlord taxation.

“While we have never been convinced that there was a solid enough legal case to overturn George Osborne’s decision, we hoped the courts would be prepared at least to listen to the arguments.

“We congratulate Steve, Chris and the campaign team on their determination, perseverance, and their success in raising awareness and increasing the visibility and understanding of what will be dramatic change to the ability of hard-working people to provide homes for others.”

David Smith, the Policy Director for the Residential Landlords Association, also comments: “Having provided support for this case, the RLA is disappointed it will not progress to a full judicial review.

“The campaign to seek changes that will address the more difficult aspects of recent tax reforms to the private rented sector must now focus on a political path.

“The Autumn Statement next month provides an important opportunity for the Government to make changes that will support the development of the new homes to rent the country desperately needs.

“The RLA has already met with Treasury officials to discuss the issue, and it will continue to lobby for changes that are good for tenants and landlords, whilst recognising the Government’s limited financial room for manoeuvre.”

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